How Useful is Credit Card Balance Transfer Plan

Credit cards are so tempting that you don’t realise how much you are spending just because you can pay your bills later. If you tend to shop too much or if there is an emergency, you will not realise how much you have spent or if you can repay the spent sum.

Though you have a grace period of 20 days, you may not be able to repay the entire bill amount. Although you have the provision to make minimum payments, such small repayments can build up to form huge debt over the course of time. This can spell major financial trouble.

What is a Balance Transfer Scheme?

If you can relate to the scenario mentioned above, a balance transfer scheme is the right solution for your problem. The balance transfer scheme allows you to consolidate your debt from one or more credit cards of other banks/financial institutions into one credit card. Here, you can divide the total outstanding balance into monthly instalments as specified by the card.

When Does a Balance Transfer Scheme Turn Useful?

• 0% Interest Rate: The foremost thing you have to check about a balance transfer facility is the interest rate. It would be meaningful to switch to this scheme if the card offers 0% interest balance transfer when your current card demands a finance charge ranging from 15% to 18% in general cases. A 0% interest balance transfer will give you more time to pay the balance in addition to helping you save on interest payments.
• Compare the Costs: If the card includes a certain interest rate, then calculate the total cost of switching your balances. Switching may include a balance transfer fee. In addition, you may have to pay an annual fee for this new card. Some banks offer a tiered interest rate where they specify different interest rates for different transfer amounts. You need to check which category you belong to and how much interest is applicable to you. Therefore, take all these factors into consideration and check if you are going to save anything as compared to your current cards and their balances. If you think you will still save a considerable sum with a balance transfer, then you are good to go.
• No Time Limit on 0% Interest: Don’t just buy the card if 0% balance transfer scheme is offered for a short time period like 3-6 months in the form of a promotional campaign. If you cannot completely pay your debt within this period, then you may have to pay higher interest once the promotion expires. So, go for balance transfer only if 0% interest rate is offered as a feature of the card i.e., without time constraints or for a time period that is long enough to completely pay off your debt.
• No Purchases: The balance transfer scheme can prove useful if you use the card for the sole purpose it was bought for. That means you must not get tempted with the other offers the new card provides you and end up spending more. This way, you will end up in a bigger pool of debt.

It’s important that you consider all these factors when you think of the balance transfer option rather than opting for a card blindly because it offers lower interest. If you think it would really address your issue of increasing debt and save you a fortune, then go for it.

If not, talk to the current bank’s staff regarding your outstanding balance and request for a reduction in the interest rate and penalty.